the four pillars_of_innovation

The Four Pillars of

Innovation

Joel M. Vardy

Vardy & Associates, LLC

Jan 27, 2012

Confidential/Proprietary Vardy & Associates LLC

THE FOUR PILLARS of INNOVATION

Business Model Innovation: “When the game gets tough, change the game”

Radical vs. Incremental (semi-radical) Innovations

The Role of Business Transformation

Business Model Diagnostics (Value Assessment/Creation)

Process Innovation: “the method & language of doing things differently…making innovation work”

New & Exciting Developments

Product/Service Innovation: “The artifacts of Innovation – the ultimate output”

Technology & Design

New Channels, Customer Service Concepts

Innovation Culture: “the art of collaboration...changing organizational DNA to achieve sustained innovation”

How to Ensure Success

How to Maintain It


“Innovation is the specific instrument of entrepreneurship. The act that endows resources

with a new capacity to create wealth”

Peter Drucker

“Innovation distinguishes between a leader and a follower”

Steve Jobs

“Without tradition, art is a flock of sheep without a shepherd. Without innovation, it is a corpse”

Winston Churchill

Innovation: Famous Quotes


Why do previously strong Corporations face

Higher Risks Today?

Corporate

Strategy

Direction

Business

Unit

Direction

Demand

Volatility Stronger

New Players

Shifting

Global Markets Closing Global

Skills

Differences

Supply

Volatility Corporate

Strategy

Direction

Business

Unit

Alignment

Demand

Volatility Stronger

New Players

Shifting

Global Markets Closing Global

Skills

Differences

Supply

Volatility

Corporate

Tactical

Countermeasures

Periods of High Volatility can Destroy Business Value in

Some Sectors allowing New Value Creation in Others…


Key Concept #1

Radical vs. Semi-Radical Innovations

Continuous Improvement

• Total Quality Management

• SPC/SQC

Semi-Radical Improvements

Existing Work Processes

• As-Is Process

Innovation

Business Transformation

• Reforming - Strategic new Vision

• Restructuring - Work Flow redesign

• Revitalization - Linking Technology

• Renewal - Changing Behavior

RADICAL Improvements

(FMEA can be applied here)

• First order changes are not enough

• Bus. Trans. required to create dramatic (radical/breakthrough) improvements

0

1

2


Balancing Creativity and Commercialism – Managing

the Paradox

CREATIVITY PROCESSES VALUE CREATION PROCESSES

Innovation

- Out-of-Box thinking

- Raw and refined ideas

- Experimentation

- Ambiguity/Uncertainty

- Research

- Intuition

- Surprise

- Courage

- Find the right things

- Ask questions and explore

the unknown innovation

- Seize opportunities

- Visualize the future and

consider all options

- Include incremental and

radical innovations

- In-the-box thinking

- Engineering/Manufacturing

- Precision

- Well-calculated trade-offs

- Buying/Selling of ideas

- Do things right

- Answer question and

verify solutions

- Avoid major risks


- Get the product into

the marketplace

- Bias for incremental

Source: “Making

Innovation Work”

Davila, Epstein, Shelton

Blue

Ocean

Disruptive

Innovations Foresighting

Ecosystems

Scenario

Planning

Innovation

Mgt

Program

Mgt

Portfolio

Mgt.

Imagination Concept to Reality

- In-the-box thinking

- Engineering/Manufacturing

- Precision

- Well-calculated trade-offs

- Buying/Selling of ideas

- Do things right

- Answer question and

verify solutions

- Avoid major risks


- Get the product into

the marketplace

- Bias for incremental

- Out-of-Box thinking

- Raw and refined ideas

- Experimentation

- Ambiguity/Uncertainty

- Research

- Intuition

- Surprise

- Courage


- Ask questions and explore

the unknown innovation

- Seize opportunities

- Visualize the future and

consider all options

- Include incremental and

radical innovations


Business Model Innovation

First Pillar of Innovation

“When the game gets tough, change the game”


The Human Brain & Innovation – Making the ‘Connections’ in a land of Complexity and Uncertainty

“The brain appears to be naturally configured for innovation to work and to have new ideas because its job is to use information about the world and innovate by modeling new ways in which the state of the world out there might be put together”

James Burke Science historian, author and television writer/producer


1. Visualize to Understand It

2. Model to Simulate It

3. Measure to Improve It

Business Models: Molding the Process --

Another Key Innovation Concept

Visualize

Model Measure

Understand

Simulate

Improve


Manufacturing

(Operations)

Business Models: Striking the appropriate Balance

between 4 Key Ideas/Metrics

Innovation

Excellence

Commercialization

Excellence

Operational

Excellence

Service

Excellence

Front Office

(external)

Back Office

(internal)

Key High

Level Metric:

Order to

Deliver Time

Key High

Level Metric:

Source-to-Make Time

Key High

Level Metric:

Time to Scale

Key High

Level Metric:

Time-to-Market

Business

Model


Business Models: Sample Innovation Value Prop. Tree

Primary Influences

KPI TREE

Drivers

Return

On Inno.

Net Oper.

Profit

Net Oper.

Margins

Variable

Costs

Revenue

Working

Capital Inno.

Process

Innovation

Improvement 1

Process

Innovation

Improvement 2.

Product

Innovation

Lost

Orders

(-)

Expedite

Overtime

Supply

Inno. Imp.

Logistics Inno.

Rework/

Wide Spec

Other

Manufacturing

Inno. Improvement

Production

(x)

Inv.

Holding

Other

(-)

Bus. Forecast

Accuracy

On Time

Delivery

Customer

Service Levels

Fixed

Costs

(/)

Measured KPI’s

for analysis


Process Innovation

Second Pillar of Innovation

“the method & language of doing things differently…making innovation work”


Process: The Innovation Process

Stage Gate Stage Gate

Gathering

the ideas

Filtering

the ideas Supporting

ideas

Bringing ideas

to the market

Putting ideas through the selection Process

• any number of ideation processes to gather ideas

• market and financial gate criteria required

• strong commercialization infrastructure critical to profitable

execution as well as talented project managers

Source: MCE Management

Centre Europe


Process: Accelerating the Innovation Process

Existing

revenue

Time Existing

Development

Costs

$ $ Time to

Market

30-50%

increase

through accelerated

and more sustained

revenue

10-40% less through

time compression and greater

efficiencies

Four Key Elements to Achieve these Results:

1. Time-to-Market

2. Internal Integration

3. Collaboration

4. IT enablement Source: IBM Global Business

Services analysis. 2006


Process: Key Factors in Driving Innovation --

Complexity, Uncertainty and Change

Complexity Maturing market (SKU proliferation starts to address different segments).

Needs to be embraced rather than feared.

Process complexity can be reduced while embracing product/service complexity.

Uncertainty Byproduct of higher levels of complexity

Market volatility

Needs to be managed and minimized

Change Constant

It cannot nor should it be eliminated

It actually represents new opportunities, frequently exploited by new startups.


Process: Transforming typical Execution-type

processes to more Planning-driven ones

To-Be

?

80/20 (Planning/Executing)

Front-End Loading (Collaborative)

20/80 (Planning/Executing)

Back-End Loading (‘Churning’)

As-Is

?


Process: Decision Process Workshops get the

Critical Organizational Buy-in


Product/Service Innovation

Third Pillar of Innovation

“The artifacts of Innovation – the ultimate output”


People

50%* Knowledge of

how to measure

& incent people

Process 30%*

Process

of running a

superior

business

Product/Service: Key Concept for Innovation-Driven

Programs: Factoring People, Process & Technology

Technology – though accounting for only 20% of project success factors is the most confusing due to

rapid changes. Key to either accelerating or enabling possible people & process factors.

*Audited Project

Success Factors Technology

20%*

Enablement

of People &

Processes

‘Formula-Raw Materials’ ‘Procedure’

‘Catalyst’ Accelerator

Enabler


Product/Service: Exploiting New and Traditional

Innovation Tools & Concepts

Innovation strength

Inn

ova

tio

n fi

eld

att

ract

iven

ess

IF 2

IF 3

IF 6

IF 4

IF 5

Low Middle High

Low

M

iddl

e H

igh

IF 1) 1

Innovation Fields/Strategy

1.1 1.3

1.41.5

2.1

2.2

2.3

2.4

2.5

3.13.2

4.1 4.2

4.35.1

5.2

5.3

6.1 6.2

6.3

7.1 7.2

7.3

1.2

0

1

2

3

0 1 2 3

Improvement potential

Str

ate

gic

im

po

rta

nc

e

Project Portfolio Selection

Creating a balanced portfolio of product/service projects

that maximizes return on innovation and mitigate risks


Innovation Culture

Fourth Pillar of Innovation

“the art of collaboration...changing organizational DNA to achieve sustained innovation”


Culture: The Innovation Culture Continuum

Foundation Advanced Breakthrough

Hierarchical Command & Control

Departmental Silos Self-directed Virtual Teams

Management

Transactional and Aggregated

Integration across the Enterprise

Learning & Service Delivery Architecture

Information

Cost and Risk Reduction

Productivity Improvement

Collaborative Improvement

Operations

Product Segmented but still Product Based

Customer’s Individual Needs and Values

Customers

Growth Growth and Performance

Innovation Strategy

Source: Ivey Business Journal

Jan/Feb 2006

“There is no guarantee that an innovation culture leads to innovation

but it certainly is a prerequisite.”


Culture: New Game Changing Strategies

-- Managing Uncertainty using Collaboration to

Val

ue

Internal

Scope

I

Functional

Collaboration

II

Integrated Internal

Collaboration

Level Of

Information

Systems

Integration

Low

High

III Integrated

External

Collaboration

IV

Integrated

Ecosystem

Highly Evolved

Incorporating both

Co-marketing and

Co-development

Across the ecosystem

Level Of

Decision

Systems

Integration

Low

High

Source: Cayuga Partners

External

Scope


Culture: The Innovators

2006 2007

Apple Apple

Google Google

Sony Toyota*

3M YouTube*

Microsoft Microsoft

JetBlue Starbucks

Starbucks Motorola

BMW Samsung*

Motorola Nike*

Target Sony

Top 10 - Most Innovative Companies

* New to list in 2007

Source: futurethink article:

2007 Innovation Tracker

The Shift from Creativity to Value

Leadership

Ideas

Strategy

Company

Personal

Strategist

Methodologist

Facilitator

2010 2011

Facebook Apple

Amazon Twitter

Apple Facebook

Google Nissan*

Huawei Groupon*

First Solar Google

PG&G Dawning* Information

Industry

Novartis Netflix

Walmart Zynga*

HP Epocrates*

Source: fastcompany.com

The Shift to Social Tech.

* New to list in 2011

Traits of the

top 10


1.1 1.3

1.41.5

2.1

2.2

2.3

2.4

2.5

3.13.2

4.1 4.2

4.35.1

5.2

5.3

6.1 6.2

6.3

7.1 7.2

7.3

1.2

0

1

2

3

0 1 2 3

Improvement potential

Str

ate

gic

im

po

rta

nce

Implementation of radical innovation

Return On

Innovation

Operating Profit

Inno. Imp.

Working Capital

Inno. Imp.

Process Inno. Imp. 1

Process Inno. Imp. 2

Cost

Inno.

Imp.

Revenue Inno. Imp.

KPI Improvement/Monitoring

Innovation strength

Inn

ova

tio

n fi

eld

att

ract

iven

ess

IF 2

IF 3

IF 6

IF 4

IF 5

Low Middle High

Low

M

iddl

e H

igh

IF 1) 1

Innovation Fields/Strategy

Inputs>Processes>Outputs>

Outcomes

KPI Development

Innovation Management Tools

Communications Plan

Readiness Assessment

- Level of External Collaboration (Structures)

- Management Support

- Demand/SKU Complexity

(no. of SKU’s & nodes)

- Tools

1st

Quartile

2nd

Quartile

3rd

Quartile

4th

Quartil

e

- Infrastructure (ERP)

Technology

- Level of Internal Collaboration (Structures)

Process

- Financial and Competitive Focus

- Strategic Clarity

People

Assess Status Strategize Operationalize Externalize Align

Organization & Behavior

Tools

Quantifying the Gap (Using Key Performance Indicators - KPIs)

Inventory Management: Current Value Unit

Marginal Value

($/unit)

Supply Chain

Improvement

Potential (%)

Raw Materials 10,000 1,000.00$ 50%

WIP 10,000 1,200.00$ 20%

Finished Product 10,000 1,400.00$ 25%

Spare Parts/Other 10,000 1,600.00$ 30%

Inventory Carrying Cost 15% % of COGS

Finished Product Management: Current Value Unit

Supply Chain

Improvement

Potential (%)

On-Time Delivery to Cust. Request Date %

On-Time Delivery to Firm Commit Date %

$/Occurrence

Expediting 500 Qty/month 1,000$ 90%

Minimum Value

($/unit) Unit

Maximum

Value ($/unit)

Supply Chain

Improvement

Potential (%)

Range of Transportation Costs 2.00$ 3.00$ 10%

Average Qty. of Product Transported Yearly 10,000,000

Process, Cross-Functional Measures: Current Value Unit

Marginal Value

($/unit)

Supply Chain

Improvement

Potential (%)

Average forecast accuracy %

Order fill rate 80% % 15%

Orders lost 50% %

Planning process cycle time 5 4,000$ 90%

- Qty. of planning occurences per year 52 Occurences

Scheduling process cycle time 6 1,000$ 90%

- Qty. of scheduling occurences per year 365 Occurences

Source-to-make cycle time 365 Days 30%

New product time-to-market 365 Days 30%

Manufacturing-Related Measures

Current Value Unit

Marginal Value

($/unit)

Supply Chain

Improvement

Potential (%)

Total Nominal Yearly Capacity: 10,000,000 100.00$ 1.0%

In Process Rework per Year 40,000 30$ 50%

Variable Cost per unit produced 20.00$ $/unit 5.0%

Selling Price per unit produced 150.00$ $/unit

Total qty of units produced per year 10,000,000

Total number of orders per year 100,000 orders/year

Average revenue per order 150.00$ $/order

Number of setups and changeovers

during a month 70 Qty/month 1,500$ 50%

Qualitative Assessment

Quantitative Assessment

6

5

4

3

1

2

Ab

ilit

y

Corporate culture

Qualification & skills

Technology

Budget

Innovation core process

Strategy

Patents & standards

Capabilities Assessment

Collaboration Maturity

Reward/Recognition

Map: As -Is

Title

Input A

Input B

Input C

Process

Step A

Process

Step C

Process

Step B

Process

Unit E

Process

Step D Output

C

Estimated Range of Innovation Benefits

Minimum (M$) Most Likely (M$) Optimistic (M$)

Non-Recurring Working Capital Benefits 13.2$ 18.9$ 24.6$

Recurring COGS Benefits 18.3$ 26.2$ 34.0$

Recurring Revenue Enhancing Benefits 26.3$ 37.5$ 48.8$

TOTAL (M$): 57.8$ 82.6$ 107.3$

Map: To - Be

Title

Input A

Input B

Input C

Process

Step A

Process

Step C

Process

Step B

Process

Unit E

Process

Step D Output

C

http://c811328.r28.cf2.rackcdn.com/16264_zoom_double_753071p.jpg


Summary: The 4 Innovation Pillars

Business Model Innovation

Business Model Diagnostics entering new era

Convergence of Disparate Data Opportunity for new markets creation

Ability to better exploit existing markets

New Diagnostic Tools and Skills geared to Data-rich environments

Process Innovation

Changes in Collaboration Practices are changing Decision Making Making it more timely and effective

Sharing of all Strategies and Tactics between trading partners

Product/Service Innovation

Product life-cycles are ever accelerating

Service opportunities are creating unique differentiators

Innovation Culture

A new breed of cross functional and cross cultural talent is needed to drive growth for the future

Capable of non-linear thinking

Able to be equal parts Strategist, Methodologist and Facilitator

Thank You

Joel M. Vardy

Vardy & Associates, LLC

(267) 222-2324 (cell) - [email protected]

mailto:[email protected]

the four pillars_of_innovation

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